Senior coalition figures have again threatened to use October's budget to force the banks into taking action on variable mortgage rates.

Both Taoiseach Enda Kenny and Public Expenditure Minister Brendan Howlin insisted yesterday that hope is not lost for thousands of variable rate customers who are paying "excessive rates".

Speaking in the Dáil, Mr Kenny said Finance Minister Michael Noonan will meet the main financial institutions again in September, ahead of October's budget.

Mr Kenny said: "The option remains for the Minister for Finance in the absence of any real movement from the banks, to take further action in the budget in October."

He also said legislation could be introduced if requested by the Central Bank, adding: "Ask and you shall receive."

Fianna Fáil leader Micheál Martin warned that the pressure is now off banks and that this is unfair on the 300,000 variable rate customers.

Movement

He also accused Mr Noonan of having an "incredible nerve" after he claimed that some banks have shown movement on the area of rates.

The exchange took place following the emergence of a draft European Commission report which warned that the stability of the financial sector could be undermined if pressure was put on the banks to slash variable rates.

"It could also have negative implications for market competition by discouraging potential new entrants to the market," the top EU body said in its report.

Meanwhile, Labour's's bid to reduce the term of bankruptcy to one year has received a major boost with the Oireachtas Justice Committee backing the move.

Tánaiste Joan Burton's party has been fighting for bankruptcy to be reduced from the current three-year period in an effort to give people with distressed mortgages more bargaining power with banks.

But Labour has been met with strong opposition from its Coalition partners in Fine Gael.

However, the all-party Justice Committee review of the bankruptcy term recommended reducing it to one year but retaining the option of increasing it to three years in certain situations.